Asia-Pacific News

China is pumping cash into Pakistan, but that might not convince other foreign investors

Key Points
  • China has committed an approximate $60 billion to infrastructure in Pakistan.
  • But financial experts CNBC spoke to were undecided on whether this would boost Pakistan in the eyes of other foreign investors.
  • China came to Pakistan's help when no-one was willing to invest due to post-9/11 security concerns, Pakistani Interior Minister Ahsan Iqbal told Chinese media outlet Xinhua last week.
A Chinese worker stands near trucks during the opening of a trade project at Pakistan's Gwadar port on November 13, 2016.
Aamir Qureshi | AFP | Getty Images

China is pouring an estimated $60 billion into Pakistan as part of its Belt and Road Initiative (BRI), but financial experts CNBC spoke to were uncertain how this would impact Islamabad's profile as an investment destination.

The China-Pakistan Economic Corridor (CPEC), as this leg of China's massive regional infrastructure spending push is known, will boost Pakistan in the eyes of investors, said Farrukh Khan, a specialist on the country's economy.

"I would expect other foreign direct investment flows to increase as the CPEC projects near completion and resolve some of the infrastructure shortcomings in Pakistan, particularly energy," he said via email.

But not everyone agrees. "Chinese activity in Pakistan is certainly raising Pakistan's profile, but only in a narrow way," Derek Scissors, an expert in the region at the American Enterprise Institute, told CNBC.

"International investors are attracted to improved infrastructure but they are less drawn by what Pakistan itself has accomplished and more by what China has done in Pakistan."

China and Pakistan's collaboration under the BRI spans a 1,864-mile-long corridor from the city of Kashgar in China's western autonomous Xinjiang region to the Pakistani port of Gwadar. It includes the construction of motorways, railways and power plants, and will also make inroads into sectors such as communication and education.

According to Khan, the scheme had also led to a "significant uptick in investment by domestic business groups."

'China proved to be a real friend'

Pakistan has long been left out in the cold by investors, having struggled to attract funding since the 9/11 terrorist attack of 2001, Interior Minister Ahsan Iqbal said Wednesday.

"The people of Pakistan believe that China came to Pakistan's help when no-one was willing to invest in Pakistan due to security considerations, or due to the negative ratings on Pakistan," he told Chinese state-run news outlet Xinhua. "But China proved to be a real friend."

"After China decided to come, the perception of Pakistan's economy changed," he added.

But Shailesh Kumar, Asia director at Eurasia Group, does not think that China's involvement will encourage other investors to park cash in Pakistan. "Chinese investment is largely strategic," he told CNBC via email.

"Many foreign investors recognize that the projects China is funding are not those that they want to participate, or compete in," he added. "Many are seen by the investor community as an attempt by China to offload its excess capacity and place Pakistan under debt."

Pakistan is ditching the dollar for trade with China — 24 hours after Trump denounced the country
Pakistan is ditching the dollar for trade with China — 24 hours after Trump denounced the country

Pakistan's economic growth was 5.3 percent in 2017, according to the International Monetary Fund, above the 4.9 average for emerging market economies as a whole but well below the 7.4 percent of India, its larger neighbor and rival.

In contrast to China's growing involvement in the country, U.S.-Pakistan relations are characteristically rocky. The most recent stumbling block came in January when the Donald Trump administration announced that it would suspend $900 million in security assistance, accusing Pakistan of not doing enough to combat terrorism.

"The government of Pakistan has worked very hard to improve the security situation here," Iqbal told Xinhua last week.

In addition to normal security measures, "we have also placed a 10,000 (security) force for special protection of Chinese who are working on the CPEC projects," he said.